Photo by Clay Banks on Unsplash
Each week, Cut the Crap Investing founder Dale Roberts shares financial headlines and offers context for Canadian investors.
Did the stock markets predict the U.S. presidential election?
This past week, the headlines were all about the U.S. election, all the time. I’ve seen so many predictions, including from Polly Pollster’s using artificial intelligence, to traditional polls, to Alan Lichtman’s, which relies on 13 keys to calling an election instead of polls. That method has called every presidential election from 1984. Lichtman predicted that Democrat Joe Biden would win in 2020. Polly Pollster was also in agreement with that call.
And the U.S. stock markets made their prediction as well. The stock market has a fairly reliable track record: Since World War II, when the S&P 500 fell in the three months leading up to the November vote during a presidential election year, the incumbent president or party of the outgoing president has lost the election 88% of the time.
Similarly, when the S&P 500 rises during that period, the incumbent or party of the outgoing president has won 82% of the time. A rising stock market will generally signal a healthy economy and brighter prospects.
The S&P 500 fell 0.04% between July 31 and October 31. That means the market is predicting Joe Biden will win, according to the CFRA Presidential Predictor. And perhaps that stock market prediction might turn out to be very prescient, things are shaping up for a very slim Democratic victory, after a very slim prediction by the stock market.
As of midday Saturday, most media outlets had declared Joe Biden president-elect. The U.S. uses an electoral college voting methodology, in which the first presidential candidate to 270 electoral college votes gets (or keeps) the keys to the White House. Late Saturday morning, the Democrats were at 290, versus 214 for President Trump and the Republicans.
A nail-biter, for an election that many said would deliver a Democratic (blue wave) surge.
Stocks surged on election day
Stock markets don’t like uncertainty, as we’ve mentioned in this space on a number of occasions. In the weeks prior to the election, the majority of polls suggested a strong Biden victory. The markets showed their approval.
